Banking Matters: A strong ethics code and a thriving business - Business - International Herald Tribune

LONDON — What would you do as a banker if a client sent you two tickets to a soccer match with a note attached thanking you for your business during the year?

If they were for an ordinary soccer match, you could accept them, because these would generally be considered reasonable business entertainment. Tickets to a World Cup final accompanied by airline bookings, however, would go beyond what is acceptable.

At least that is what Standard Chartered tells its employees in its code of conduct, a document that goes beyond broad principles and into the details of conducting business in the 56 countries where it is present.

The banking industry generally believes that internal behavior, like employee rules on hospitality, cannot be separated from external activity, like local community outreach.

Socially responsible behavior inside and outside a bank also translates into good business. So-called ethical funds, for example, are inclined to buy shares of financial institutions whose reputations do not distract from the core business of banking.

Every major international bank has a code of ethics, many of which have been tightened further since governance concerns have shaken the likes of Citigroup, which announced in October 2004 that it would shut its private banking unit in Japan after transactions violations.

But Standard Chartered, based in Britain, is arguably at the forefront of the industry in incorporating ethics, corporate governance, community relations and diversity into its operations.

Like many banks, it aims for a water-tight model to ensure that its ethics standards are incorporated into all business.

Standard Chartered, though, has gone further than many rivals by creating a committee at the board level, as well as a series of steering committees and operational country risk committees.

No other bank has such thorough and senior involvement, according to Innovest, a ratings agency that focuses on environmental, social and governance issues.

What makes Standard Chartered all the more worthy of emulation, said Greg Larkin, an analyst at Innovest, is that the bank drills its ethics standards into place even in high-risk markets where corruption, bribery and government interference make doing business above board a tricky proposition.

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The bank's chief executive, Mervyn Davies, said he believed that socially responsible companies produced superior value for shareholders. Davies is at the forefront of efforts to uphold internal ethics and governance practices at the bank, and he said active contribution to the communities in which the bank operated and an awareness of environmental issues also attracted investors and burnished the bank's image.

This, he said in a recent interview, is the core of "profit with principles."

The bank, which reported a 24 percent rise in 2005 pretax profit to a record $2.68 billion, has two board members responsible for governance across its regions of operations.

Their job is to ensure that Davies is never portrayed on the front page of newspapers bowing in apology, as did Charles Prince, the chief executive of Citigroup, in 2004 in Japan because of the violations. After more regulatory violations in the United States, the Federal Reserve barred Citigroup in March 2005 from making large acquisitions for a year. Prince has since pushed to make ethics central to the bank's business.

But efforts to operate in a socially responsible manner do not hinge solely on internal ethics. On the human resources side, Standard Chartered is one of the most diverse banks in the world.

Its global work force includes 89 nationalities. It emphasizes moving the more promising recruits around the network to develop their careers and treating women as equals, a concept that is not a given in some countries where the bank operates.

In its recent merger with Korea First Bank, for instance, Standard Chartered diplomatically integrated high-level female bankers into the new operation. The fact that the new bank, SC First Bank, was not subject to any strike action by employees in a country accustomed to union militancy, illustrated the value of melding cultural awareness and strong management skills.

Yet Standard Chartered also says its successful recruitment is in part due to its standing on ethics. A record 65,000 university graduates applied to join the bank last year. Of those recruited, about 50 percent cited the bank's ethics standards as a factor in their decision to join it.

It is difficult to put a specific value on a bank's adherence to an ethical stance like this one. But at least part of Standard Chartered's stock market valuation - it has a price/earnings ratio of 16.4, compared with an average of 11 among its peers - can be attributed to it.